Who keeps that unused FSA money?
Q: Any money you don’t use in a flexible spending account (FSA) is not refunded. Where does that money go? Are there any data on how much is left over at year’s end?
A: You may use a health-care FSA to pay for a variety of qualified medical expenses not covered by your insurance, including doctor’s fees, prescriptions, and many over-the-counter medicines. A dependent-care FSA entitles you to use the money to pay for a baby sitter or other caretaker so you can work. No employment or federal income taxes are deducted from the contributions. Withdrawals are also tax-free.
To open up an FSA, you tell your human resources folks the amount you wish to contribute, say $1,300. Even though you would pay in 26 paycheck deductions of $50 each, your employer makes the full amount available to you January 1 if it is a health-care plan. If you spend $1,300 by February 1 and quit your job in March, your employer has to cover the rest of your contributions. With a dependent plan, the money becomes available only after you’ve made enough contributions. Any money not used by the end of the year in either plan goes to — to da! — your employer.
A survey of 3,000 employers with 10 or more workers conducted by Mercer Human Resource Consulting found that the average contribution to a health-care FSA in 2003 was $1,136 while the average forfeiture among those who left money on the table was about $34. For the dependent-care plan, the average annual contribution was $2,552; average forfeiture $25.
EXCERPT FROM February 2005 Money Advisor - Consumer Reports